Charan Singh Meena v. Union Of India , Madhya Pradesh High Court, Judgment, Law, casemine.com

Factual and Procedural Background

The opinion arises from a Public Interest Litigation filed by the petitioner alleging that respondents, specifically respondent No. 3, a solar power plant subsidiary, have failed to discharge their statutory obligations under Section 135 of the Companies Act, 2013 relating to Corporate Social Responsibility (CSR). The petitioner contends that the CSR activities shown by respondent No. 3 are only on paper and not actually implemented in the field. The petitioner seeks a direction to respondent No. 1, the Union of India, to ensure proper and strict compliance with CSR obligations for the development of nearby villages in District Sheopur, Madhya Pradesh. The respondent No. 3 claims to have discharged its CSR obligations through various community development activities. The Union of India submits that while the Companies Act and related rules provide the framework for CSR, there is no direct governmental monitoring mechanism, and the law's spirit is to create a conducive environment for corporates to act responsibly rather than to monitor their activities.

Legal Issues Presented

Whether companies covered under Section 135 of the Companies Act, 2013 are discharging their CSR obligations in letter and spirit, specifically whether the CSR activities are genuinely implemented on the ground or merely reflected on paper.

Whether the Central Government has a role or mechanism to monitor and ensure actual implementation of CSR activities by companies as mandated under Section 135 of the Companies Act, 2013.

What remedial measures can be directed to ensure compliance with CSR provisions by companies operating in Madhya Pradesh.

Arguments of the Parties

Petitioner's Arguments

The respondents have failed to fulfill their statutory CSR obligations despite being bound by Section 135 of the Companies Act, 2013.

The CSR activities claimed by respondent No. 3 are only documented on paper and not actually carried out in the field.

The Union of India has not established any mechanism to verify or ensure actual implementation of CSR activities.

Requests the court to direct respondent No. 1 to enforce proper and strict compliance with CSR obligations, particularly for development of specific villages in Madhya Pradesh.

Respondent No. 3's Arguments

Respondent No. 3, a solar power plant subsidiary, asserts that it has systematically discharged its CSR obligations for the financial year 2016-17 and preceding years.

CSR activities undertaken include formation of women self-help groups, financial literacy sessions, school sanitation and hygiene education, promotion of solar energy, community sanitation, water source upgrades, vocational training programs, and other community welfare measures across several villages.

Union of India's Arguments

The Central Government has amended Schedule VII of the Companies Act, 2013 to specify CSR activities including eradication of hunger, promoting education, gender equality, environmental sustainability, rural development, and other social welfare measures.

The Government has framed the Companies (Corporate Social Responsibility Policy) Rules, 2014 to implement Section 135 of the Act.

There is no direct governmental rule or mechanism to monitor CSR implementation on the ground.

The law's main purpose is to encourage corporates to voluntarily act in a socially responsible manner rather than impose stringent monitoring.

Existing provisions such as mandatory disclosures, accountability of CSR Committees and Boards, and audit requirements provide sufficient safeguards to ensure compliance.

Court's Reasoning and Analysis

The court analyzed the statutory framework under Section 135 of the Companies Act, 2013, which mandates companies meeting certain financial thresholds to constitute a CSR Committee, formulate and disclose a CSR policy, and spend at least two percent of average net profits on CSR activities. The court noted the petitioner's grievance that respondent No. 3's CSR activities are not genuinely executed in the field. The Union of India’s stance that the Government does not monitor CSR implementation was considered. The court found merit in the petitioner's contention that without field-level monitoring, CSR obligations risk remaining theoretical rather than practical. Consequently, the court directed district Collectors in Madhya Pradesh to assess whether companies are genuinely discharging their CSR responsibilities on the ground. If deficiencies are found, the Collectors must report to the Registrar of Companies for appropriate legal action. The court emphasized ensuring that the objectives and spirit of Section 135 are achieved in both letter and spirit.

Holding and Implications

The court disposed of the petition finally with directions to the district Collectors in Madhya Pradesh to verify actual implementation of CSR activities by companies covered under Section 135 of the Companies Act, 2013. The Collectors are to report any non-compliance or insufficient CSR activity to the Registrar of Companies for further legal action. The Chief Secretary of Madhya Pradesh is also directed to ensure proper implementation of these directions.

The direct effect of this decision is the institutionalization of local administrative oversight to ensure companies comply with their CSR obligations substantively rather than superficially. No broader precedent altering the statutory framework or Government's role in CSR monitoring was established; the ruling focuses on practical enforcement within the existing legal scheme.

Charan Singh Meena v. Union Of India

Sanjay Yadav, J. - With an object and the scope implicit in it, Section 135 was introduced in the Companies Act 2013, providing for:-

"135. Corporate Social Responsibility.-(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

(2) The Board''''s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

(3) The Corporate Social Responsibility Committee shall,- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time.

(4) The Board of every company referred to in sub-section (1) shall,- (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company''''s website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount."

2. As evident section 135 of the Companies Act, 2013 provides that every company having specified networth or turnover or net profit during any financial year shall constitute the Corporate Social Responsibility Committee of the Board. The composition of the Committee shall be included in the Board''''s Report. The Committee shall formulate policy including the activities specified in Schedule VII. The Board shall disclose the content of policy in its report and place on website, if any of the company. The section further provides that the Board shall endeavour to ensure that atleast two per cent of average net profits of the company made during three immediately preceding financial years shall be spent on such policy every year. If the company fails to spend such amount the Board shall give in its report the reasons for not spending.

3. Petitioner pro bono vide this Public Interest Litigation alleges that respondents though bound by the statutory stipulations have failed to discharge their statutory obligation, consequently, seeks direction to respondent No. 1 Union of India to ensure the proper and strict compliance of Corporate Social Responsibility for development of nearby Villages i.e. Hullpur and Ladpura, Tahsil Vijaypur, District Sheopur.

4. Respondent No. 3 is a solar power plant at Vijaypur started in the financial year 2013-14 under the SPV Renew Solar Energy (TN) Private Limited. It is a subsidiary Company of Renew Power Ventures Pvt. Limited. Its 2% CSR obligation for financial year 2016-17 as per average Net Profit as borne out from the pleadings and the material on record of previous 3 years is 8,07,400. It is contended that the respondent No. 3 has systematically discharged its Corporate Social Responsibility by carrying out activities such as Formation of women self-help groups, Financial literacy sessions for women groups, School Sanitation and Hygiene Education, Information dissemination on government schemes, Community involvement activities for youth such as sports etc., Activation of PTA, Livelihood enhancement of youth through vocational training programs, Promotion of solar energy, Community sanitation and environment friendly living conditions, Upgrading existing water sources, Installation of new water sources, Promoting community managed water supply systems, Upgradation of school infrastructure such as quality of building, availability of drinking water, functional sanitation systems, Deepening of wells, installation of handpumps, covering of wells, Installation of solar systems in schools for availability of electricity in schools and included Village Ikloud, Hullpur, Ladpura, Dhulewala and holding Village Level meet, PRA Exercise, Workshop-Village Level/Awarness Meet, Activity specific intervention of common nature benefiting the community, IEC Activities (Rally, Exhibition, Wall Writing etc.), School Sanitation Complex, Provisions for Safe Drinking Water, Provision of New Well, Roof Top Water Harvesting in Schools, Branding, World Environment Day, Entry Point Bards, Handwashing Activities with Children, Meeting of Women Self Help Groups.

5. The contention on behalf of petitioner is that it is only on papers the work is shown to have been done; whereas there is no work carried on the field. And since the Union of India has not provided for any mechanism to ensure as to whether actual work has been carried out the respondent No. 1 and the like are not actually discharging their Corporate Social Responsibility.

6. To ascertain as to what measures are taken by the Central Government to ensure proper implementation of section 135 of Companies Act, 1956, it is informed by learned Assistant Solicitor General that Central Government in exercise of powers conferred by Sub-Section (1) of section 467 of the Companies Act, 2013 has amended Schedule VII of the Act by substituting following items and entries, viz, :

"(i) eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water;

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;

(v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts;

(vi) measures for the benefit of armed forces veterans, war widows and their dependents;

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;

(viii) contribution to the Prime Minister''''s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;

(x) rural development projects."

7. It is further stated on behalf of Union of India that for implementation of this scheme mooted vide section 135 of the Act of 2013, Central Government in exercise of its powers conferred under section 135 and sub-sections (1) and (2) of section 469 of the Companies Act, 2013 has framed Rules namely the Companies (Corporate Social Responsibility Policy) Rules, 2014. It is however fairly submitted that there is no direct rule of the Government in monitoring, implementation of Corporate Social Responsibility by the Companies under the provisions of Companies Act.

8. It is however stated that the main thrust and spirit of the law is not to monitor but to generate conducive environment for enabling the corporates to conduct themselves in a socially responsible manner, while contributing towards human development goals of the country. It is urged that the existing legal provisions like mandatory disclosures, accountability of the Corporate Social Responsibility Committee and the Board, provisions for audit of the accounts of the company etc., provide sufficient safeguards in this regard and the Central Government has no role to play in monitoring implementation of Corporate Social Responsibility by companies.

9. These contentions made on behalf of the Central Government brooks possibility that the Corporate Social Responsibility if not monitored on the field will only remain on paper rather than being executed in the field. When the grievance raised on behalf of the petitioner is tested on the anvil of the stand of Central Government, we are forced to think that there is substantial force in the contentions on behalf of the petitioner that respondent No. 3 has not carried out its statutory obligation in letter and spirit.

10. In view whereof, we direct Collector of the Districts in the State of M.P. to take stock of the situation to ascertain as to whether respective companies covered by the provisions contained under section 135 of the Companies Act, 2013 are actually discharging their responsibilities in consonance therewith on field and if it is found that no such activities are being carried out or activities are being carried out is not up to the percentage as warranted under section 135 of the Act of 2013 they are further directed to inform the same to the Registrar of the Companies for appropriate action against the respective company under the law.

11. Let a copy of order be sent to the Chief Secretary, Govt. of M.P. to ensure its proper implementation so that scope and object set forth with an introduction of section 135 of Companies Act, 2013 is meted out to its hilt and in letter and spirit.

12. Petition is disposed of finally in the above terms. No costs.

Writ Petition (service) No. 877 Of 2017 (Pil).

Charan Singh Meena v. Union Of India

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondent No. 3's Arguments

Union of India's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Charan Singh Meena v. Union Of India

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